Economist: Trump's Probe Against Fed Chair Powell Undermines Independence, Harms Americans

Criminal Probe and Fed Independence

• ⚖️ An economist argues that the US Justice Department weighing criminal charges against Federal Reserve Chair Jerome Powell is an unprecedented attempt to undermine the institution's independence.
• 🏛️ This action is seen not as a direct attempt to fire Powell, but as political pressure on the Fed to influence monetary policy.
• 💡 Every living former US central bank chief has criticized the probe, highlighting its attempt to subvert the Fed's autonomy.

Economic Repercussions of Political Interference

• 📈 If politics, rather than economic data, forces the Fed to cut rates, the result will be higher inflation, a weaker dollar, and increased long-term borrowing costs.
• 📉 The Fed's independence is crucial for maintaining US fiscal credibility and institutional strength, which influences long-term borrowing costs for ordinary Americans (mortgages, credit cards).
• ⚠️ Actions that threaten the Fed's independence are not helping to bring down these long-term costs for average citizens.

Trump's Motivation and Debt Concerns

• 💰 Donald Trump's insistence on lower interest rates is likely driven by the US's major national debt problem, aiming to refinance debt and reduce interest payments.
• 📊 However, lowering the overnight rate would not significantly help, as over 80% of US debt is based on two-plus year Treasury yields.
• 🎯 The goal of lowering the debt burden requires allowing the Fed to perform its job independently.

Potential Shift in Fed Leadership

• 🗓️ The Supreme Court's decision on firing Fed Governor Lisa Cook could impact the Fed's composition, potentially leading to a majority of Trump appointees.
• 🔑 If Powell were to resign and Cook were removed, it could create two open seats, potentially filled by individuals favorable to Trump's policies.
• 🇺🇸 This scenario could result in a more politically affiliated Fed by June, with negative consequences for inflation and borrowing costs.

Mischaracterization of Inflation

• 📉 The previous Fed mischaracterized post-pandemic inflation as